Blockchain for Banking News

Italian Banking Association trials two styles of wholesale CBDC

wholesale cbdc wCBDC ABI italy

Last year the Italian Banking Association (ABI) said it would trial a wholesale central bank digital currency (wCBDC), Project Leonidas, as part of a Bank of Italy’s sandbox. It released the trial results last week, declaring it a success. The primary benefits were atomic transactions, transparency and information traceability.

The tests were conducted in 2023 and planned before the Eurosystems wholesale DLT trials with central bank money were announced.

While other wCBDC trials often involve testing securities settlement, the ABI focused on the settlement of interbank transactions. It has the distinction of launching one of the first mass DLT banking deployments, Project Spunta, the interbank reconciliation process that went into production in 2020 with almost 100 Italian banks.

Unsurprisingly, Spunta featured in one of the two Leonidas use cases. Spunta uses DLT to automate interbank reconciliations, providing the balances owed or due between the banks. As part of Project Leonidas, a wholesale CBDC was used to settle the interbank balances automatically.

The second use case involved the automated settlement of Cash in Transit. Each bank holds cash in dedicated vaults handled by a Cash Handling Company. That way they can distribute cash to their branches. However, sometimes one bank is short and another has excess cash. So the money is moved between their vaults. That leaves a debt between the banks, which is usually settled with a wire transfer. For the trial, the interbank cash movement was automatically settled using the wCBDC.

Two different wCBDC models

The trial used two different wholesale CBDC models. Last year the Banque de France highlighted three wCBDC models. In the integration model, the wholesale CBDC is issued on the same platform as the other asset(s). The integration model was used to settle Spunta interbank balances using the ABILabChain. This is similar to the live pilots by the Swiss National Bank, in which the wCBDC is issued onto the SDX blockchain. The ABI said there were ‘challenges’ as a result of integrating two distinct networks. So it explored an alternative.

The Cash in Transit test involved the interoperability model. In this case, there are two separate DLTs. One has the wCBDC, and the ledger is updated with the change of ownership of the wCBDC. The other blockchain is where the assets live, logging the changes in cash ownership. It’s critical that the two changes happen simultaneously. The ABI said that at a technical level, there’s a need for a locking component to ensure protocol synchronicity.

Meanwhile, the participants in the trial included the ABI, 16 banks, blockchain firm R3, the Spunta technology partner NTT Data, and the Milano Hub, the Bank of Italy’s innovation hub.